SMALL BUSINESS OWNERSHIP
Small business ownership is a worthwhile career option, if some well-known problems can be solved:
- Verifying the existence of a market
- Verifying the suitability of the work for you
- Acquiring know-how
- Finding financing for the uncertain early stages.
- Recruiting a qualified team of employees.
Franchises address the know-how issue and sometimes provide some access to financing. But a solution to the entire problem has been successfully used for generations. It is simply to buy a business (on easy terms) from your boss when she or he is ready to retire. This has numerous advantages:
- It's a going concern. There should be little doubt about its viability.
- You've acquired the know-how and verified first-hand whether this is a good business for you.
- A team with known qualifications is already present.
- Most important, it's financeable.
Financeability is important. Banks have little interest in small startups unless
most of the capital is already in place as equity and even then they are likely to require plenty of collateral. They may insist on a second mortgage on your home. Expect to get your initial capital from savings, family sources and partners. A going concern, on the other hand, is more creditworthy.
- Lenders are familiar with management buyouts. Management-in-place is usually the most credible buyer, able to get the most financing.
- If you need partners, the other key employees may welcome the opportunity to buy in.
- In addition, all entrepreneurs must eventually sell and retire, so such sellers, with relatively little negotiating room, are likely to be more flexible.
- And, a going concern requires less capital and embodies less risk.
- Finally, there is little question about valuation, since you've been inside and perhaps had access to the books for several years. Valuation and financing can be troublesome in the case of a purchase by an outsider.
This leaves two problems:
- Locating an owner who will be ready to sell in three to five years, who has no family or other potential successors already interested in the business and who wants to employ you;
- Being confident that you can quickly grow the business. It must continue to pay the salary of the owner (you) and also pay off a large note to the old owner. This is conceivable because the business you seek may have been neglected for reasons of health, competing interests, etc. But success is by no means guaranteed;
hard-nosed analysis is still essential.
These two problems may be more manageable than the four we started with at the beginning of this article.
Ample assistance is available.
There are many other books and several magazines about starting and running a small business. Some colleges offer short courses, too.
The University of Maryland's Dingman Center for Entrepreneurship offers a mentoring program. Another University affiliate, the Maryland Small Business Development Center, is co-sponsored by the U.S. Small Business Administration and can provide a full range of advice and training from offices across the state. A separate entity provides similar services in Delaware. SBDC serves small businesses of every type.
- Technological entrepreneurs can benefit from Maryland's
high technology trade association.
- The Maryland Department of Business and Economic Development maintains the valuable MD Business site.
- Authoritative information about state regulation is contained in the book "Business Regulation," available from the Maryland General Assembly's Department of Fiscal Services (410-841-3761).
- You should also consult your attorney and accountant; good legal advice is essential, especially if you will have partners. This site does not provide legal or accounting advice.
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